An FI has made a loan commitment of SFr$10$ million that is likely to be taken down in six months. The

current spot exchange rate is $$\frac{1\mathrm{.}0210}{S}Fr.$

a$.$ Is the FI exposed to the dollar depreciating or the dollar appreciating? Why?

b$.$ If the FI decides to hedge using SFr futures, should it buy or sell SFr futures?

c$.$ If the spot rate six months from today is $$\frac{1\mathrm{.}0610}{S}Fr,$ what dollar amount is needed in six month if

the loan is drawn?

d$.$ A six$-$month SFr futures contract is available for $$\frac{1\mathrm{.}0310}{?}$ SFr$.$ What is the net amount needed at the

end of six months if the FI has hedged using the SFr$10$ million of futures contracts? Assume that

futures prices are equal to spot prices at the time of payment, that is$,$ at maturity.

e$.$ If the FI decides to use options to hedge, should it purchase call or put options?

f$.$ Call and put options with an exercise price of $$\frac{1\mathrm{.}0310}{S}Fr$ are selling for $$0\mathrm{.}02$ and $$0\mathrm{.}03$ per $SFr,$

respectively. What would be the net amount needed by the FI at the end of six months if it had used

options instead of futures to hedge this exposure?